Espresso: The D2C Blueprint - How to scale to 3 mill revenue in 3 months - Matt Kelly

0:06a lot of our listeners are CPG businesses and what they do is they'll focus solely on retail and completely neglect d2c whereas you're coming out from the other way around and actually i suppose the value of d2c is you've got way more margin got more control of the the whole customer journey but i'd love to go into what are the principles of getting a d2c brand going say say there's someone listening to this who's got a product in sainsbury's for example but they're like right d2c could be a big play for us no fucking idea what to do i know this a lot of this will be really like obvious to you but for our listeners it won't be what are the top three things you absolutely must do and then what the top three things you should biggest mistakes that most people make when they're starting out like almost like put into noob language if you want to call it that yeah i mean just to be clear i'm a noob with retail so i'm kind of coming at it from the opposite way i guess the beauty of dtc is speed i think you know you can literally go from nothing to your first hundred grand in revenue in weeks if it goes well whereas retail that's obviously not the case and i'm learning that but fundamentally d2c comes down to the golden ratio is ltv to cac really um out just those definitely it's a lifetime value in customer acquisition yeah exactly so you know if you can increase if you can increase the distance between those numbers your ltv be higher your cac be lower then basically you've got a good business and sorry what are those just to give sorry to put this in like dtc for dummies language but what are those for listeners lifetime value and uh cac yeah yeah so with ltb or ltr so lifetime value or lifetime revenue count the same thing depends on where you slice it's just how much a customer will spend in their lifetime with with your brand so from from their first purchase to the their last purchase or you know you typically would look at like a 12 month ltb so how much they spend over a year so in my case that's how much Rainbow Dust has someone bought over a year.

2:04You know, whether they're a one-time purchaser or a subscriber, you know, we're a subscription-heavy business, so that's pretty good for LTV. And CAC is just cost to acquire a customer. So if you spend£1 ,000 in Instagram ads, say, and you acquire 100 customers, your CAC is 10 quid because you acquired 100 and you spent 1 ,000, right? Easy math. So yeah, basically, they are metrics. And ultimately, D2C, you'll be running paid social, Google, TikTok ads. that they're the three we do right now so meta tiktok google right now i'm spending about 160 grand a month on paid social which is quite a lot and then to do that we're running a lot of creative so you know 30 second ads you've probably seen them before like fucking pink packet showing it all blah blah blah like yeah creative is the most important things we have a system for that which i've built up over the past year and a bit we test a footload of new creatives we run ads we primarily run ads in the uk but you can do it you can do it worldwide you run it to your website or a landing page most of us dedicated landing page you know someone lands on the page read about the product buy it whatever so yeah fundamentally like our target cac so new customer cac is about 50 quid right now so we're willing to spend about 50 quid to acquire a customer most our customers now that we acquire do subscribe to the product we know that most of them stay on average between four and five months in terms of buying it every month so we know that our LTV is generally between 160 and 200 quid on a subscriber so that's pretty healthy you know it's like a three to one ratio on the lower end like LTV's cuck basically a business that can spend more to acquire a customer is going to win in DTC long term and the way you can do that is you can either increase your LTV or you can raise loads of fucking venture capital because you know that eventually you're going to increase your LTV.

3:50So right now, if I could spend 100 quid instead of 50 quid, I could probably spend four times as much on Instagram because the general economics of paid social or just paid ads in general is that the more you spend, the more expensive it gets. That's just how it works because you're competing with more brands that have got bigger budget. So we're spending about five grand a day on ads right now. If we want to spend 50 grand a day, I'm probably going to have to work out how we can spend 100 quid instead of, or even 150 quid instead of 50 quid to acquire a customer and really that means we're probably going to have to look at 24 month ltv to justify that because you know 150 to 200 doesn't really check out because there's no margin there by the time you've taken away cogs fulfillment tax etc so i don't know if that makes any sense from for a beginner but yeah basically it's just driving more traffic to your website to acquire more customers with the main metric being how much you spend to acquire a customer but obviously there's loads of factors that go into that like conversion rate is it subscription product is it a one-time product do you have other products to upsell them on later because we have we've basically been one a one product business up to now pretty much we have our dream dust one but kind of fucked that up so i don't really market that we're launching a new flavor next week for the first time which should be quite cool for ltv because we can obviously upsell existing customers got a few other things in the pipeline but yeah essentially whoever can spend the most to acquire a single customer wins because you can outbid everyone else and you can spend more on ads and if you can spend more on ads you can basically generate more revenue and that's how you grow a business so you know massive brands like Gymshark are probably spending hundreds of thousands per day on paid social I would imagine I don't know I haven't seen their numbers but just to give an idea of like how much brands actually spend on this shit um I mean when I was running Neon Beach I was spending 25 grand a day at one point on Instagram so you're talking like 2 million people every day seeing your ads which is quite a lot of people so that's like in a nutshell how i've grown every business i've ever created it's spending money on ads quick one guys espresso's got a brand new sponsor unleashed unleashes inventory management software that talks directly to your finance and econ software we use unleashed daily islands i bloody love it we've got our admin time in half saving approximately 30k a year why use it save money save headache, save stress, get granular clarity on your margins, know where your stock is, don't miss availability.

6:17Look, your favourite brands literally use Unleashed as their backbone. Candy Kiddens, Tiny Rebel, Trip, all use it religiously. Look, there's a link in the show notes. Please feel free to book a call with Josh and his wonderful sales team at Unleashed. They're amazing. Even nothing comes of it. And even better news, you'll get your first month free if you reference Hungary. Thank you. When you say spending money on ads and you talked, you said you've got this creative system so say you say you put 20 grand into ads for for space goods yeah look where's that money actually going is that on on different are you testing lots of different adverts like where does the because i think i kind of get the landscape i.e the cac and the lifetime value and kind of how that works but then i suppose so many brands who listen to this are on or on i have a dtc business that does fuck all for them there's nowhere near 100 grand like how are you spending that money do you see what i mean yeah i'm always amazed i speak to a lot of founders that haven't really cracked d2c and i say are you running ads and they say no and i say well how the fuck does anyone ever going to know about your website then like i don't understand it like where does the revenue come from if people aren't going to the website so yeah i mean so i said we spend like five grand a day right now on ads i mean about 80 percent of that is on instagram so those are those annoying ads you see that say sponsored i mean people listen to this might have seen the brand or you certainly see in other brands you know athletic greens are going really hard on instagram right now i feel like everyone is being hit by athletic greens and huel and brands like that i know trip spending quite a lot on instagram as well i see their ads all the time so yeah when you see that ad and click that's what i'm i'm buying an impression basically so with pay social you pay per thousand pay per thousand people so yeah that's pretty much it so i'm paying to put my ads in front of you so it's really important that my ad is good and that when you click the ad my website or landing page is good so there's a lot of variables and moving parts which is why i think d2c is like brutally complicated because there are so many moving parts to fundamentally just sell a product even when you have one product which is a bit more simple and then also like ads on google so if you search like mushroom coffee you'll probably see space goods come up on shopping that that's a different ad platform so that's pay-per-click that's youtube and then it's same shit on tiktok so you know you you might see ads on tiktok it's the same model as instagram so that's where the money's going we're basically just buying impressions on ad platforms and it's very targeted you know we're targeting people that might be interested in wellness fitness mushroom coffee whatever it is i mean creative is probably the most important variable these these days because these platforms have such powerful algorithms so much data that you can almost just put zero targeting on ad these days and just run a good creative and facebook will just but it will find you buyers it pretty much works like that what are what are the creatives that have worked like really well for you and what what are the and then what are the flip side of that what are the mistakes most people make with coming up with these ads you've seen yeah i think like a general theme and stuff i've done in the past as well is generally stuff that is really cheap to produce works better really yeah honestly like you you'd be amazed how many times i've done fancy like i mean even like those 80s movies i made that were kind of for fun like they just simply do not convert customers they're too long no one's got an attention span like that stuff that works well for us is like just really choppy stuff that we've done loads of ads that are like kind of pretending it's like a magic potion with like graphics and shit stuff like that works pretty well i mean now we're actually trying to diversify a bit because almost all our ads have had like the same guy that's brad that works for me in the ads so now we're trying to pivot a bit more towards like a an affluent middle-aged female audience so we're using creators that are more in that demographic but yeah it's funny like I've literally made an ad on my iPhone and made it myself in 10 minutes and it's performed better than a fucking studio shoot that costs five grand so yeah I think like high production stuff should be on your website and then stuff that's on ads should just be all about performance because yeah it's literally like it's like there's a science to it really it's you know how many people you're showing the ad to how many are clicking through how many convert on the website it just comes down to numbers which is probably what takes a lot of like the creative fun out of it because you're not making a cinematic movie you're making a conversion ad and often you're testing like 25 of them every week so it really is a numbers game but yeah it's pretty brutal it's just it's another game and it's this huge um user generated content because now make i always thought i look used to look at like um i think i can't remember some of the brands that have done it but i've always thought fucking hell who's gonna buy that but it's mad that that actually converts what at least i just watched one of your adverts i thought this was really interesting and it goes back to your point of brands founders being predominantly middle class right and it's like i went i went to a good school like i came from a good very privileged background but i think what's really interesting is there's i don't know i've discussed it with a few people in the podcast but it's like it's creating middle class middle class product middle class people create middle class products for middle class problems and and the the the messaging is is very uh like oh hello mate like how you doing do you know what i mean like all throughout i watched your advert and i thought this is sick and i don't know i don't know what the reference is but it was a whole myriad of different accents all around talk about the product but you had like a geordie you had a promy you had someone posh you had a female you had someone old what's the why behind that because i that really struck a chord with me that was probably actual customers speaking and our customer base is very diverse probably more diverse than i first thought to be fair because it's a pretty mass appeal product um but yeah i mean there probably was some logic to that it might just be a test i don't actually know how well that ad did it might perform way better if we all had a southwest london accent i don't know but yeah ultimately it comes down to knowing your audience right and if you want to build a mass market brand which i definitely do i actually think right now we're not mass market enough we're probably a bit too maybe a bit too pink and neon in terms of appealing to like a super mass market audience because ultimately anyone that drinks coffee is a potential customer in my mind yeah whereas right now we're probably appealing mainly to early adopters that are like oh I want to try this pink thing whereas there's an argument to say like Karen in fucking Basingstoke who's never heard of mushrooms before might be a bit scared off by the fact that we're bright pink and you know we're alluding to psychedelics and so on so that's the challenge that maybe a lot of brands have when they're going from being like a big bedroom brand to like actually a big brand which takes a lot of time and requires you hitting that mass appeal particularly in the UK because we are like 90 % focused on the UK right now and I think I think you can get to 10 to 15 million a year just in the UK with this product you probably well you definitely can't get to 100 million which is why you'd have to go to America if you want to go like huge level like that but yeah where was I going with that I suppose it's all just testing and knowing your audience and looking at the data really um but but I'm also still very much figuring out my audience because when I launched the products I just made it for me I thought it would be like just kind of like entrepreneur bros that would try it like kind of biohacker types was actually like the loudest segment of our customers in terms of the ones that write the best reviews the email saying they love it and shit is genuinely like middle-aged women that have got anxiety which is maybe not surprising in hindsight but kind of surprised me a little bit i mean maybe it makes sense it's like a pink brand it's arguably slightly feminine although you can't say that anymore because 2023 but yeah i'm always learning but our customer base really we do a lot of surveys like post-purchase surveys surveys to our email list and so on and it's actually a pretty gender well not gender neutral but we're like 50 50 male female in terms of our customer base whereas i maybe thought it would be more guys because a lot of our early marketing was kind of like entrepreneur focused whereas now it's a bit more holistic and wholesome thank you so so much for listening it honestly means the world to me I hope you enjoyed your morning coffee and go and have an amazing day let's be having ya if you want the full episode it will be in the show notes a link will be in the show notes for the full episode thank you so much please say friends as well it means the world to me